Student loan refinance rates are dropping, but is a refi the right move for you?

What you need to know if you’re thinking about refinancing your student loans.

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For 10-year fixed rate loans, the average student loan refinance rate continues to fall to 5.64% from 5.83% the previous week, according to the latest personal finance market rates Credible from those who have prequalified in their student loan market for the week ending July 11. Average 5-year variable rate loan rates also fell to 2.51% from 3.37% the previous week. (You can see the lowest fares you could qualify for here.)

Americans have over $1.7 trillion in student loan debt – so it’s no surprise that many people are looking to refinance their student loans. And for those who already have private student loans, refinancing may be a smart move — assuming you can get more favorable rates and terms. But for those with federal student loans, there are other considerations to take into account.

Indeed, during the refinancing of a federal student loan, a new private loan is contracted to repay the existing public loan. But in doing so, you lose all the federal protections that came with federal loans. Essentially, this means the borrower waives any pandemic-related forbearance or government-issued loan relief or income-driven repayment plans that might act as a parachute at some point during the term of the loan. .

So, experts recommend doing your due diligence before pulling the trigger on a refi, especially if the borrower is using (or planning to use) one of these programs. If the borrower is taking advantage of the current federal student loan forbearance which suspends all federal student loan payments until August 31, 2022, it really doesn’t make sense to refinance before that period ends. And even if a borrower is not currently using the programs and protections offered, they should consider whether the need for loan repayment or cancellation plans will arise in the future, before canceling the option altogether.

Fortunately, private student borrowers are generally not at risk of losing these protections, so refinancing is a simpler decision. If you are considering refinancing a private student loan because your credit score has improved, your finances have changed, and/or you are able to get a better interest rate or shorten the term of your loan, you will likely benefit from a refinance. (You can see the lowest fares you could qualify for here.)

Prices correct at time of publication.

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